Nearly 30 percent of California public companies will have to add women to their board of directors by year end to comply with a 2018 state law aimed at boosting gender diversity in the boardroom.

The Women on Boards survey released Friday by San Diego-based Board Governance Research looked at the board makeup of 642 publicly traded companies headquartered in California. It found 184 firms will need to find a woman director this year under the law.

Most are small publicly traded companies with a market capitalization of $300 million or less, said Annalisa Barrett, author of the study and chief executive of Board Governance Research.

“I was surprised by the number of companies that are going to have to make changes in their board composition,” said Barrett, who is also a lecturer at the University of San Diego on corporate governance. “Almost 200 this year are going to have to add women to their boards, and certainly by the 2021 deadline, there is going to be significant change in the board rooms of California companies.”

By the end of 2021, companies with five-member boards must have at least two female directors; corporations with six or more directors would need at least three women. Companies that fail to comply will face six-figure financial penalties.

Based on the board makeup today, California public companies will have to fill 1,060 board seats with female directors by 2021, according to survey.

The goal of the law is to close the gender gap in the corporate world. It is expected to face legal challenges – though no lawsuits have been filed to date.

Companies still have time to comply, so no fines have been issued to challenge in court, said Dan Eaton, an attorney with Seltzer, Caplan, McMahon & Vitek in San Diego.

And public companies are likely reluctant to file a lawsuit that could be seen as opposing gender diversity, he said.

California boardrooms are predominately male. About 85 percent of nearly 5,000 board seats of public companies headquartered in the state are held by men, according to the study.

The larger the company, the more likely it is to have women board members. Of the state’s companies that are both on the Fortune 1000 and Russell 3000 indexes, 97 percent have at least one female director.

The Fortune 1000 and Russell 3000 are indexes of the largest publicly traded companies in the U.S. based on market capitalization.

Today, 30 percent of Fortune 1000 companies in California already comply with 2021 requirements of the new law regarding female directors.

For smaller California public companies, only 8 percent currently meet the law’s 2021 benchmark.

“The larger companies are much further along,” said Barrett. “They have always had women on the board and have been responsive to shareholders calling for diversity on the board. It is the smaller companies that have yet to act.”

Diversity and independence on corporate boards is being driven in part by large institutional shareholders, said Barrett. Some studies have shown that companies with higher levels of gender diversity have stronger financial performance, she said.

“Microcap companies, especially those that are not included in the Russell 3000 index, are not subject to as much pressure from institutional investors when it comes to governance issues,” she said. “And microcap companies tend to have smaller boards. Smaller boards in general also have fewer women.”

The lack of women on corporate boards occurs partly because women hold relatively few top executive jobs at companies, said Christina de Vaca, chief executive of the Corporate Directors Forum in San Diego, a nonprofit that works to educate and support board members.

“In the board room, the difficulty is you need to have a talent pool to draw from,” she said. “The more women executives we have, the more that pool expands.

“So right now companies have to dig deeper,” she said. “The talent is there, but it is not as obvious as it will be when more women are in the executive suite. It is a multi-tiered process.”

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